Investigative website CobraPost’s expo­ses have shown bankers across India, both public and private, promising the whole array of dirty tricks: money-laundering, opening dummy acc­ounts, and sending illegal funds overseas—to an undercover reporter. But though strict norms (such as Know Your Customer) seem to have been flagrantly flouted, the regulatory response has been tame: the banking association has been asked to conduct an inquiry. CobraPost editor Aniruddha Bahal talks to Pragya Singh on the “odd” reactions to his sting operation, dubbed Red Spider. Excerpts:

What do you make of the reactions of the authorities to Red Spider?

The reactions seem a little odd. Some say they already knew banks launder money, so what’s new. Yes, everybody knows there is black money, but does everybody know that mainstream blue-chip banks launder money? I don’t think so. It came as a big shock to me. The next surprise was how, from day one, different arms of government started protecting the banks. Within one hour, the finance minister said he has spoken to the bank heads and that they had assured him nothing is wrong. The government should at least have waited until the banks start their own inquiries. This was like taking the version of a criminal syndicate and leaving it at that. Now, after a long time, the RBI says it is taking suo motu action against those who had erred. The RBI is the regulator of both public and private banks and must act against both.

No money exchanged hands between your undercover reporter and the bank officials. Does this mean nothing culpable was done by them?

There are scores of laws in India related to crimes, banking, prevention of corruption and money-laundering, which say exactly the opposite—you need not have completed a transaction to be liable. Everyone on our tapes can be tried right now. They tell us how to subvert the law, how to push money under the radar, how to split it into different accounts, hide it under different names, how to make fake pan cards. Even such an attempt, forget actually doing it, is punishable.

Our reporter even called it ‘scam ka paisa’, but there wasn’t a single banker who told us they would not accept it.”

What made you stop at the point before giving the money?

We have brought them to the point of culpability. If I had also broken the law, they would have first booked me under the Prevention of Money Laundering Act. The expectation that CobraPost should have actually got money laundered is ridiculous. I went the whole way in Operation Duryodhana (an earlier sting) and they booked me—for abetting corruption. I mean, the state is a very venal state. They got me in the past for doing it, and now they have a different line—that I didn’t do it.

What laws have the bank officials broken on tape?

There is not a single KYC norm that they have not broken. They confess to transactions which are, without doubt, “unusual” transfers. There are confessions about transactions made from multiple accounts for a single beneficiary. The officers said they have been structuring transactions specifically to evade reporting to tax authorities. They even offer to disguise the identity of beneficial owner: “Apne naam mat karo, biwi ke naam karo.” There are confessions to having unexplained cash lying in bank accounts. One of the offers constantly made to the reporter was that he can make frequent cash transactions just below the withdrawal limit, to evade scrutiny. Even offering to do all these things is wrong.

How do we know it’s a systemic problem and not just your sample?

We didn’t pick and choose bank branches based on any criteria except logistics. We went in randomly, and told the officers that we have black money. The reporter even called it “scam ka paisa” or politician’s money. There wasn’t a single banker who told us that under these circumstances they will not accept the money. Not one demanded a KYC. A couple refused to help, but still offered lockers for cash. A few refused, but only because they did not know the reporter personally, not because it’s illegal.

“The expectation that the sting operator should actually have got the money laundered is quite ridiculous.”

How about sending money overseas? Do you think the banks could really have done this without attracting attention?

Everyone is allowed to send a certain amount of money overseas, for specific, defined criteria—education, health reasons and so on. We went to banks saying that we had illegal money that we wanted to send overseas. And they said they would help us make it seem (using false papers) as if we have a legit reason for the transfer.

Also, some bankers claim on tape, oddly, that levying a TDS at the end of an insurance policy’s term would turn black money into white.

A lot of times we uncovered mis-selling, which is what this is. In such cases, whether you go with your black or white money doesn’t matter. They just try to sell you a product that they want to push. The nexus between insurance companies and banks can only break if all insurance products are standardised, and all banks offering these products don’t have a nexus with particular companies—they should offer all products at each branch or none at all. Otherwise, this myth of “customer choice” will keep getting perpetuated, and the only gainer is the mis-selling agent and now, even the banker.

The banks say they merely violated KYC terms, and that some junior officials were misguided....

Violation of KYC is a sureshot sign of money-laundering. What is money­-laundering, first of all? And, are KYC norms just a mere technicality? Our reporter is saying, “scam ka paisa hai”. This brings it immediately within the scope of the money-laundering act. So a guy is saying he has criminal money, but not one banker asked him what the source of his funds is. You understand the situation? How will you know what the source of funds is, if you don’t pose KYC queries and merely see it as an obstacle to overcome? “Yeh paisa kahan se aaya hai?” It’s a question nobody asked, so nobody knows. After this, the banks cannot claim that just KYC norms, as if they don’t really matter, have been violated. Or that just income-tax laws have been violated. In fact, these bankers claim they can turn disproportionate assets into white money. They claim to be experienced in this job. These are extra-judicial confessions, not innocent chatter.

What do you want regulators to do?

In one case, a bank official said that he has asked for his senior’s approval, via e-mail, to send a large amount of cash overseas. The government should have, by now, seized such e-mails and documents. Secondly, the Enforcement Dir­ectorate, which alone has expertise in investigating such crimes, must be pulled into action, like it was in the Sa­­r­adha scam. SEBI is not getting into the case. Money-laundering is a crime, not an auditing mistake. Who knows how many thousands of such hawala transactions will come to light. The banks are saying that these are individual, misguided employees going too far. Mark my words, if the ED comes to investigate, this will not remain their plea.

If you wish your letter to be considered for publication in the print magazine, we request you to use a proper name, with full postal address - you could still maintain your anonymity, but please desist from using unpublishable sobriquets and handles

What if people say, except for our leaders like Mahatma Gandhi, Nehru, etc., Indians were racist, even when our culture welcomes other ideas and cultures? I mean, we made an India, where people adopted a system, to modify it in a manner, where the British would not dream of using our system, anywhere. Did the Indian know, what multi-party democracy is? If there had been no party based democracy, no party would be frightened, to loose power. There has never been anarchy in India, in history, and the govt. has believed, and has made Indians believe, that anarchy will spread if the govt. does not exist as it does, and on the top of it, it functions in a manner, where the privacy of the political executive is sacrosanct. I mean, the politician says, that in 'govt. interest', they must have the official secrets act, as if they were duty bound to serve India out of compulsion, when they were honorable lawyers, doctors, businessmen, etc., and then found out after becoming politicians, what the job is.

Ms. Sheila Dikshit mentioned, she was offered a bribe, by a party/person. The question is, how are politicians important in a govt. structure, where the administration are called 'public servants', and the political class tells the 'servants' what to do? The police are 'civilians', and people among the citizenry. They are not very happy with the police job, because the politicians aren't making it easy for them. I mean, why have a police force, if people can give bribes to each other, as civilians, and under a political leadership, which shouldn't, but asks the police to put others in jail, everyone being the civilian population? What are 'servants'? The idea that the civilian 'servant', puts the 'master' in jail, is really unusual, especially, when the 'master' has not met his 'servant', and wouldn't like to meet him/her. People who regard others, might not like the term 'servant', and I mean the 'masters'. Also, the unborn child, seems to be the 'property' of the state. The state, assumes responsibility for the child, but can only put people in jail, if the child is harmed. Who wants, to plan to create unborn 'property' for the state, because the govt. wants it?

What about immense money laundering done in real estate sector in India? The biggest source of black money transations in India is real estate. We have KYC norms enforced for a poor citizen who wants to just open a savings account at same time a man with crores of black money can build a skyscraper in this country without any proof of source of income. How about that? Will the Cobrapost conduct sting operations on real estate companies and try to find the extent of money laundering? How about trying to find out how many of the sales of items like ceramic tiles are properly billed (and taxes paid)?

Globalisation is blessing. And inevitable. Even if you want to you cannot stop it at your geographical boundaries. Globalisation moves knowledge, education , health care, technology , man-power, everything across the world. Besides high-flying corporates, globalisation is one thing which can be said to have genuinely benifited common man.

Most prominent & largest benificiary of globalisation is international high finance. They move billions from one end of globe to another with a click of a mouse.

In India volume of the money generated by the parrallel economy is as big as that of its GDP. Beside big corporations , politicians & bureaucrats generate huge amount of underground money. One can't tuck away that kind of money under the pillow. Moreover money has a habit of spinning out more money.

It is only natural , that banks - public or private - would tap this huge source of unaccounted money. And banks must be doing this with a wink from government. Black money holders & international banks has very high incentives to get in to these operations. They undergo little risk as money belongs to those vwho are supposed punish them for beaking the law.

Moreover , India is one of the rare countries which has institutionalised system of converting black money in to white. Double taxation treaties with tax havens such a Maritus, absence of GAAR , P-notes are some of them.

So it is surprising that the banks accepting large tranches of unaccounted money unquestiongly has not come in to public domain so far.

We at Outlookindia.com welcome feedback and your comments, including scathing criticism

But:

1. Scathing, passionate, even angry critiques are welcome, but please do not indulge in abuse and invective. Our Primary concern is to keep the debate civil. We urge our users to try and express their disagreements without being disagreeable. Personal attacks are not welcome. No ad hominem please.

2. Please do not post the same message again and again in the same or different threads

3. Please keep your responses confined to the subject matter of the article you are responding to. Please note that our comments section is not a general free-for-all but for feedback to articles/blogs posted on the site

4. Our endeavour is to keep these forums unmoderated and unexpurgated. But if any of the above three conditions are violated, we reserve the right to delete any comment that we deem objectionable and also to withdraw posting privileges from the abuser. Please also note that hate-speech is punishable by law and in extreme circumstances, we may be forced to take legal action by tracing the IP addresses of the poster.

5. If someone is being abusive or personal, or generally being a troll or a flame-baiter, please do not descend to their level. The best response to such posters is to ignore them and send us a message at Mail AT outlookindia DOT com with the subject header COMPLAINT

6. Please do not copy and paste copyrighted material. If you do think that an article elsewhere has relevance to the point you wish to make, please only quote what is considered fair-use and provide a link to the article under question.

7. There is no particular outlookindia.com line on any subject. The views expressed in our opinion section are those of the author concerned and not that of all of outlookindia.com or all its authors.

8. Please also note that you are solely responsible for the comments posted by you on the site. The comments could be deleted or edited entirely at our discretion if we find them objectionable. However, the mere fact of their existence on our site does not mean that we necessarily approve of their contents. In short, the onus of responsibility for the comments remains solely with the authors thereof. Outlookindia.com or any of its group publications, may, however, retains the right to publish any of these comments, with or without editing, in any medium whatsoever. It is therefore in your own interest to be careful before posting.

9.Outlookindia.com is not responsible in any manner whatsoever for how any search engine -- such as Google, Bing etc -- caches or displays these comments. Please note that you are solely responsible for posting these comments and it is a privilege being granted to our registered users which can be withdrawn in case of abuse. To reiterate:

a. Comments once posted can only be deleted at the discretion of outlookindia.com
b. The comments reflect the views of the authors and not of outlookindia.com
c. outlookindia.com is not responsible in any manner whatsoever for the way search engines cache or display these comments
d. Please therefore take due caution before you post any comments as your words could potentially be used against you